How To Find A Trustworthy Money Manager

Jennifer Abelson, CEO of the Abelson Group, a marketing firm in New York, saw her portfolio decline when the financial crisis hit. But unlike many investors, she didn't blame her portfolio advisor.

"Over the past year Dan and I have talked at least twice a month," says Abelson, referring to Dan Limmer, of Planning Solutions on Long Island, who has been handling her family and business finances for six years. "I knew where our money was invested, and I knew he'd worked out a long-term strategy for us. I read the newsletters he sent to clients explaining market conditions and that was helpful. And now my portfolio is starting to come back."

If your view of the person who takes care of your investments is any less glowing, it might be time to make a change. Wealth managers--the term is virtually interchangeable with wealth advisor, financial planner, portfolio manager, financial consultant, etc., have been hard hit in the current economy. As a result, they are competing for clients in ways that have less to do with quarterly portfolio performance and more to do with earning your long-term trust.

It would be hard, if not impossible, to find an advisor who made money for his clients when the markets tanked. Nevertheless, individual investors all over the world emerged from the financial crisis feeling betrayed by their advisors, a sentiment that was not always without merit.

The Boston Consulting Group (BCG), which conducts an annual survey of global wealth, found in their 2009 survey of wealth managers and clients that wealth advisors have seen a steady flow of clients' assets leave over the last few quarters. Clients complained that advisors didn't explain complicated investment products or the risks they carried. And in a separate study of 12,000 women BGC concluded that women were particularly dissatisfied with the financial services industry; a whopping 73% of all respondents said they were unhappy with the services they'd received, citing disrespect, condescension, bad advice and contradictory policies.

Lisa Decker of Atlanta knows about bad investment advice first-hand. She and her husband, who used to own a granite countertop and surfacing company together, kept their money with a wealth advisor for nearly 20 years until they parted ways 2001. "Our advisor had persuaded us to invest in a variable universal life policy the month before the Sept. 11 attacks," says Decker. These kinds of policies are generally sold with the promise that you will get life insurance while investing part of your premiums into mutual-fund like instruments, and you'll be able to borrow against the cash value. What advisors often don't disclose is that they make hefty commissions from selling these policies, and the investment portion can lose money. "We invested $25,000 and a month later we were down to $5,000," she says.

Decker, who believes her advisor didn't understand all the risks, had studied to be a certified financial planner herself, and shortly after the variable life fiasco she was recruited to work for a financial services firm. "I saw that advisors would say anything to clients," she says. "They were telling average Americans to pull equity from their homes to invest in other products. That's appropriate only for people with plenty of reserve assets."

A trusted wealth manager is invaluable for anyone who has upward of $100,000 to invest but lacks either the time or inclination to monitor the markets eight hours a day. Here are five important indications that an advisor can be trusted.

Willing to Criticize the Industry's Bad Practices

A wealth manager who is truly looking out for her client's best interests is likely to have some choice words to say about her own industry.

"Every time I meet with new clients I hear stories about their experience with other financial planners. Many of them give even me nightmares," said wealth manager Diahann Lassus when she spoke as president of the National Association of Financial Advisors in a testimony before Congress this past July.

Lassus, cofounder and president of Lassus Wherley, which has offices in New Providence, N.J., and Bonita Springs, Fla., is part of a growing movement of wealth managers who are pressing Congress and the Securities and Exchange Commission (SEC) to set up a regulatory body to oversee everyone who offers financial and investment advice.

You might find an honest and responsible wealth manager who believes in less government intervention and thinks fiduciary standards should be voluntary. But nevertheless, seek one who gets reassuringly livid about those who have given the industry a bad name. A Certified Financial Planner (CFP) designation is a good indication that your advisor has trained rigorously and continues to attend classes and take tests,

Open About the Fees They Charge

Over the last several decades many wealth managers have relied on compensation from purveyors of annuities, derivatives and other investment products. The industry is moving away from that, in the name of consumer protection; but make sure your advisor tells you of all her sources of compensation. A fee-only advisor gets compensation only from you, so she is beholden to no one else. Fees can run from about 2% a year for portfolios in the $100,000 range, and to 0.5% for those worth several million dollars. You will also have to pay transaction fees, but these go to the brokerage firm, not to the person managing your account. The National Association of Personal Financial Advisors has a data base of fee-only planners on its Web site, www.napfa.org.

Takes a Family-Based Approach

Multifamily office firms, set up as financial advisors and an emotional sounding boards for families with assets in the range of $10 million and up, are becoming a model for wealth managers who work with the affluent. "I've seen advisors take this approach to families with just half a million dollars in assets, though at least $1 million is more realistic," says Chris Geczy, who is the director of the Wharton School's Wealth Management Initiative, which provides educational programs for wealth advisors and investors. An advisor with a family-based approach will hold meetings with your children, as well as your parents or any other family members who have a stake in your finances. The advisor might steer your family through discussions not just about investing, but also about estate planning, taxes, insurance, philanthropy, college applications or a general family philosophy about money.

Has a Team of Experts at Their Disposal

For emotionally wrenching family discussions about money, a wealth manager might provide a team of experts that might include a certified public accountant, an estate lawyer or perhaps a psychologist who specializes in money issues. But even if you don't want to make your finances an extended family affair, there is a growing trend in which a wealth manager--acts as a relationship manager and leads a team that takes care of your finances.

Urges Clients to Educate Themselves

Look for an advisor that encourages clients to take adult extension classes that cover such topics as investment basics, budgeting, tax planning, portfolio allocation, and even how to handle problems with your wealth advisor. Even if you are already a whiz at finance, your wealth advisor should insist on taking time to make sure you understand the inner workings and accompanying risks of every investment you make. "Wealth managers should understand every product they recommend to clients well enough to explain it," says Geczy.